U.S. Bureau of Labor Statistics

Multifactor Productivity Trends News Release

For release 10:00 a.m. (EDT) Wednesday, March 30, 2011 USDL-11-0435
Technical information:(202) 691-5606 mfpweb@bls.gov  www.bls.gov/mfp
Media contact: (202) 691-5902 PressOffice@bls.gov
MULTIFACTOR PRODUCTIVITY TRENDS - 2009
Private nonfarm business sector multifactor productivity grew at a modest 0.1
percent annual rate in 2009, the U.S. Bureau of Labor Statistics reported
today. (See chart 1, table A.) In 2009, the gain in multifactor productivity
reflected decreases of 3.7 percent in output and 3.8 percent in the combined
inputs of capital and labor. Capital services grew by 1.1 percent, and labor
input which is the combined effect of hours worked and labor composition
 fell 6.3 percent. (See table A, table 1.) For both the private nonfarm
business and private business sectors, the declines recorded in output,
combined inputs of capital and labor, and labor input were the largest in the
series, which began in 1987. Growth in capital services was also the slowest
recorded since the series began.
Multifactor productivity measures the change in output per unit of combined
capital and labor. Multifactor productivity is designed to measure the joint
influences of technological change, efficiency improvements, returns to scale,
reallocation of resources, and other factors on economic growth, allowing for
the effects of capital and labor. Multifactor productivity, therefore,
differs from labor productivity (output per hour worked) measures that are
published quarterly by BLS since it includes information on capital services
and other data that are not available on a quarterly basis. Additionally,
multifactor productivity measures for the private business and private nonfarm
business sectors account for shifts in the composition of labor. Estimates of
labor composition are not included in the quarterly labor productivity
measures.
Private business sector multifactor productivity grew 0.2 percent in 2009,
reversing a decline of 0.9 percent in 2008. The multifactor productivity
gain in 2009 reflected decreases of 3.6 percent in output and 3.8 percent in
the combined inputs of capital and labor. Capital services grew by 1.0
percent, and labor input fell by 6.3 percent. (See table A, table 2.)
Historical trends in private nonfarm business
Multifactor productivity in private nonfarm business grew 0.9 percent annually
between 1987 (the starting year of the series) and 2009. Output increased at
a 2.8 percent annual rate over that period and combined inputs of capital and
labor rose an average of 1.9 percent per year. Output per hour worked
(labor productivity) grew at a 2.2 percent rate. For the 2000-2007 period,
multifactor productivity in private nonfarm business rose more rapidly than
in previous periods, averaging 1.4 percent per year. Multifactor productivity
decreased for the 2007-2009 period, averaging a decline of 0.5 percent per
year. Output decreased at a 2.4 percent annual rate over that period and
combined inputs of capital and labor fell an average of 1.9 percent per year.
(See table A.)
Labor productivity growth, or output per hour, can be viewed as the sum of
three components: multifactor productivity growth, the contribution of capital
intensity, and the contribution of shifts in labor composition. Multifactor
productivity and the contribution of capital intensity contributed more to
output per hour during the latter half of the 1990s. (See table B.) The
growth rate of these two components continued to be relatively high over the
2000-2007 period. For 2007-2009, the contribution of capital intensity,
reflecting the ratio of capital to hours worked, rose sharply compared to
previous periods due to a sharp decline in hours worked. Of the 2.4 percent
growth rate in private nonfarm business labor productivity for the 2007-2009
period, 2.3 percent can be attributed to the contribution of capital intensity,
while the 0.5 percent contribution of labor composition was offset by the 0.5
percent decrease in multifactor productivity.
Capital services grew 3.8 percent for the 1987-2009 period. Within capital
services, equipment was the fastest growing component, averaging 5.9 percent.
(See table 5.) The increase in equipment was largely due to capital services
of information processing equipment and software, averaging 10.8 percent.
The fastest growth in equipment was in computers and related equipment,
which grew 20.8 percent.
For the 2000-2007 period, within equipment, information processing equipment
and software (IPES) grew 8.3 percent annually. For the 2007-2009 period, IPES
slowed to 5.6 percent annually. For both periods, the rate of increase in
information processing equipment and software was markedly lower than the
double-digit increase observed in the 1995-2000 period.
Revised measures
The revised multifactor productivity measure for the most recent year reflects
the use of a more rigorous methodology than that used in the preliminary
multifactor productivity release published on October 6, 2010
http://www.bls.gov/news.release/archives/prod3_10062010.pdf. Revisions to
underlying data affect multifactor productivity growth rates in both 2008
and 2009. (See table C.) For 2008, the 1.0 percent decline in multifactor
productivity growth for the private nonfarm business sector was lower than
the 0.1 percent increase reported on October 6, 2010. This downward revision
in multifactor productivity growth was largely due to output being revised
down to a decline of 0.9 percent from a decline of 0.2 percent. For 2009,
the 0.1 percent change in multifactor productivity growth for the private
nonfarm business sector was also lower than the 0.7 percent change reported
on October 6, 2010. The revision in multifactor productivity growth in 2009
was due to a revision in the labor composition estimate to account for more
recently published data. The labor composition estimate, used in the labor
input measure, was revised up to 0.9 percent from 0.3 percent. The MFP labor
composition measure uses 2009 wages from the 2010 March supplement to the
Current Population Survey (CPS) to determine weights across groups. In
contrast, the preliminary MFP labor composition estimate assumes relative
wages across groups remain constant between 2008 and 2009.
Table A. Compound average growth rates for productivity, output, and inputs
in the private nonfarm business and private business sectors for selected
periods,1987-2009
In percent
1987- 1987- 1990- 1995- 2000- 2007- 2008-
2009 1990 1995 2000 2007 2009 2009
Private nonfarm business1
Productivity
Multifactor Productivity2 0.9 0.5 0.5 1.3 1.4 -0.5 0.1
Output per hour of all
persons 2.2 1.4 1.6 2.8 2.6 2.4 3.7
Output per unit of
capital services -0.9 -0.4 -0.4 -1.0 -0.5 -4.3 -4.7
Output 2.8 3.2 2.9 5.0 2.7 -2.4 -3.7
Inputs
Combined inputs3 1.9 2.7 2.4 3.6 1.3 -1.9 -3.8
Labor input4 1.1 2.3 2.0 2.5 0.4 -3.9 -6.3
Hours 0.6 1.7 1.3 2.2 0.1 -4.7 -7.1
Labor Composition5 0.5 0.6 0.7 0.3 0.3 0.8 0.9
Capital services 3.8 3.6 3.3 6.0 3.2 2.0 1.1
Analytic ratio
Capital services per
hour of all persons 3.2 1.9 1.9 3.8 3.2 6.9 8.8
Private business1
Productivity
Multifactor Productivity2 1.0 0.6 0.4 1.5 1.5 -0.4 0.2
Output per hour of all
persons 2.3 1.6 1.5 2.9 2.7 2.4 3.7
Output per unit of
capital services -0.8 -0.4 -0.3 -0.7 -0.4 -4.1 -4.5
Output 2.9 3.2 2.8 5.0 2.7 -2.3 -3.6
Inputs
Combined inputs3 1.9 2.6 2.4 3.4 1.2 -1.9 -3.8
Labor input4 1.0 2.1 2.0 2.3 0.3 -3.9 -6.3
Hours 0.5 1.6 1.3 2.0 0.0 -4.6 -7.0
Labor Composition5 0.5 0.6 0.7 0.3 0.3 0.7 0.8
Capital services 3.7 3.6 3.1 5.8 3.1 1.8 1.0
Analytic ratio
Capital services per
hour of all persons 3.1 2.0 1.8 3.7 3.1 6.7 8.6
1. Excludes government enterprises.
2. Output per unit of combined labor and capital inputs.
3. The growth rate of each input is weighted by its share of current dollar
costs.
4. Index of hours at work; hours at work by age, education, and gender group
group are weighted by each groups share of the total wage bill.
5. Ratio of labor input to hours.
Table B. Compound annual growth rates in output per hour of all persons
and the contributions of capital intensity, labor composition, and
multifactor productivity in the private nonfarm business and private
business sectors for selected periods, 1987-2009
In percent
1987- 1987- 1990- 1995- 2000- 2007- 2008-
2009 1990 1995 2000 2007 2009 2009
Private nonfarm business1
Output per hour
of all persons 2.2 1.4 1.6 2.8 2.6 2.4 3.7
Contribution of
capital intensity2 1.0 0.6 0.6 1.2 1.0 2.3 3.0
Contribution of
information processing
equipment and software3 0.6 0.5 0.5 0.9 0.6 0.8 0.9
Contribution of all
other capital services 0.4 0.1 0.2 0.2 0.4 1.5 2.0
Contribution of
labor composition4 0.3 0.4 0.5 0.2 0.2 0.5 0.6
Multifactor productivity5 0.9 0.5 0.5 1.3 1.4 -0.5 0.1
Contribution of R&D to
multifactor productivity
Private business1
Output per hour
of all persons 2.3 1.6 1.5 2.9 2.7 2.4 3.7
Contribution of
capital intensity2 1.0 0.6 0.6 1.2 1.0 2.3 2.9
Contribution of
information processing
equipment and software3 0.6 0.5 0.4 0.9 0.5 0.8 0.9
Contribution of all
other capital services 0.4 0.2 0.1 0.3 0.4 1.5 2.0
Contribution of
labor composition4 0.3 0.4 0.5 0.2 0.2 0.5 0.5
Multifactor productivity5 1.0 0.6 0.4 1.5 1.5 -0.4 0.2
1. Excludes government enterprises.
2. Growth rate in capital services per hour multiplied by capital's share of
current dollar costs.
3. Growth rate of information processing equipment and software per hour
multiplied by its share of current dollar costs.
4. Growth rate of labor composition (the growth rate of labor input less the
growth rate of the hours of all persons) multiplied by labor's share of
current dollar costs.
5. Output per unit of combined labor and capital inputs.
Multifactor productivity plus contribution of capital intensity and
labor composition may not sum to output per hour due to independent
rounding. Contribution of information processing equipment and all other
capital may not sum to the contribution of capital intensity due to
independent rounding.
Table C. Annual growth rates of the preliminary and revised multifactor
productivity measures in the private nonfarm business sector for the
1987-2009 period
Percent change from previous year
Multifactor Productivity
Year Preliminary Revised
1988 1.0 1.0
1989 0.1 0.0
1990 0.4 0.4
1991 -0.9 -1.0
1992 2.3 2.3
1993 0.3 0.3
1994 0.7 0.7
1995 0.0 0.0
1996 1.4 1.4
1997 0.6 0.6
1998 1.5 1.5
1999 1.6 1.7
2000 1.6 1.6
2001 0.7 0.7
2002 2.4 2.4
2003 2.5 2.4
2004 2.6 2.5
2005 1.0 1.1
2006 0.4 0.4
2007 0.5 0.4
2008 0.1 -1.0
2009 0.7 0.1

TECHNICAL NOTES
Capital Services: Capital services are the services derived from the stock
of physical assets and software. There are 86 asset types for fixed business
equipment and software, structures, inventories, and land. Data on
investments in physical assets are obtained from BEA. Data on inventories
are estimated using BEA and additional information from IRS Corporation Income
Returns. Data for land in the farm sector are obtained from USDA. Nonfarm
industry detail for land is based on IRS book value data. Current-dollar
value-added data, obtained from BEA, are used in estimating capital rental
prices.
Among equipment, BLS provides additional detail in tables 5 and 6 on
information processing equipment and software (IPES). IPES is composed of
four broad classes of assets: computers and related equipment, software,
communications equipment, and other IPES equipment. Computers and related
equipment includes mainframe computers, personal computers, printers,
terminals, tape drives, storage devices, and integrated systems. Software is
comprised of pre-packaged, custom, and own-account software. Communications
equipment is not further differentiated. Other IPES includes medical equipment
and related instruments, electromedical instruments, nonmedical instruments,
photocopying and related equipment, and office and accounting machinery.
Structures include nonresidential structures and residential capital that are
rented out by profit-making firms or persons.
Financial assets are excluded from capital services measures, as are
owner-occupied residential structures. The aggregate capital services measures
are obtained by Tornqvist aggregation of the capital stocks for each asset
type within each of 60 NAICS industry groupings using estimated rental prices
for each asset type. Each rental price reflects the nominal rate of return
to all assets within the industry and rates of economic depreciation and
revaluation for the specific asset; rental prices are adjusted for the
effects of taxes. Current-dollar capital costs can be defined as each
assets rental price multiplied by its constant-dollar stock, adjusting for
capital composition effects.
Labor Input: Labor input in private business and private nonfarm business
is obtained by chained superlative (Tornqvist) aggregation of the hours at
work by all persons, classified by age, education, and gender with weights
determined by each groups share of the total wage bill. Hours paid of
employees are largely obtained from the Current Employment Statistics program
(CES). These hours paid are then converted to an at-work basis by using
information from the Employment Cost Index (ECI) of the National Compensation
Survey (NCS) benchmarked to the Hours at Work Survey. Hours at work for
nonproduction and supervisory workers are derived using data from the Current
Population Survey (CPS), the CES, and the NCS. The hours at work of
proprietors, unpaid family workers, and farm employees are derived from the
Current Population Survey. Hours at work data reflect Productivity and Costs
data as of the February 3, 2011 Productivity and Costs news release
(USDL-11-0128). The growth rate of labor composition is defined as the
difference between the growth rate of weighted labor input and the growth rate
of the hours of all persons. Additional information concerning data sources
and methods of measuring labor composition can be found in Cindy Zoghi, 2007,
Measuring Labor Composition: A Comparison of Alternate Methodologies
 http://www.bls.gov/bls/fesacp1121407.pdf.
Combined Inputs: Labor and capital services are combined using Tornqvist
aggregation, employing weights that represent each component's share of total
costs. The Tornqvist index uses changing weights; the share in each year is
averaged with the preceding years share. Total costs are defined as the
value of output less a portion of taxes on production and imports. Most taxes
on production and imports, such as excise taxes, are excluded from costs;
however, property and motor vehicle taxes remain in total costs.
Capital Intensity: Capital intensity is the ratio of capital to hours worked
in the production process. The higher the capital to hours ratio, the more
capital intensive the production process is.
In a production process, profit maximizing/cost-minimizing firms adjust the
factor proportions of capital and labor if the price of one factor is less than
the other factor; there would be a tendency for the firms to substitute the
less expensive factor for the more expensive one. In the short run, changes
in hours worked are more variable than changes in capital services. Changes
in hours worked in business cycles can result in volatility of the capital
intensity ratio over short periods of time. In the long run an increase in
wages relative to the price of capital will induce the firm to substitute
capital for labor, resulting in an increase in capital intensity.
Rising labor costs are, in fact, an incentive for firms to introduce
automated production processes. Industry estimates of capital to hours
ratios can be obtained at http://www.bls.gov/mfp/mprdload.htm.
Output: Private business sector output is a chain-type, current-weighted
index constructed after excluding from gross domestic product (GDP) the
following outputs: general government, nonprofit institutions, private
households (including owner-occupied housing), and government enterprises.
This release presents data for the private business and private nonfarm
business sectors. The private business sector, which accounted for
approximately 76 percent of gross domestic product in 2005, includes all of
gross domestic product except the output of general government, government
enterprises, non-profit institutions, the rental value of owner-occupied real
estate, and the output of paid employees of private households. Additionally,
the private nonfarm business sector excludes farms from the private business
sector, but includes agricultural services. Multifactor measures exclude
government enterprises, while the BLS quarterly Productivity and Cost series
include them. The output measures are based on the revised National Income
and Product Accounts (NIPA) data released by BEA on January 28, 2011.
Multifactor Productivity: Multifactor productivity measures describe the
relationship between output in real terms and the inputs involved in its
production. They do not measure the specific contributions of labor or
capital, or any other factor of production. Rather, multifactor productivity
is designed to measure the joint influences of technological change, efficiency
improvements, returns to scale, reallocation of resources, and other factors
on economic growth, allowing for the effects of capital and labor.
The multifactor productivity indexes for private business and private nonfarm
business are derived by dividing an output index by an index of capital
services and labor input. The output indexes are computed as chained
superlative indexes (Fisher Ideal indexes) of components of real output.
Research and development: The stock of research and development in private
nonfarm business is derived by cumulating constant dollar measures of research
and development expenditures and allowing for depreciation. Current dollar
expenditures for privately financed research and development are obtained from
annual issues of Research and Development in Industry published by the National
Science Foundation. BLS develops price deflators and estimates of the rate of
depreciation. Further description of these data and methods can be found in
BLS Bulletin 2331 (September 1989), "The Impact of Research and Development on
Productivity Growth." BLS measures of year-to-year contributions of research
and development to the private nonfarm business sector and measures of the
stock of research and development are available at
http://www.bls.gov/mfp/rdtable.pdf .
Other information: Comprehensive tables containing additional data beyond
the scope of this press release are available upon request at 202-691-5606
or at http://www.bls.gov/mfp/mprdload.htm . More detailed information on
methods, limitations, and data sources of capital and labor are provided in
BLS Bulletin 2178 (September 1983), Trends in Multifactor Productivity,
1948-81 and on the BLS Multifactor Productivity website under the title
Technical Information About the BLS Multifactor Productivity Measures
for Major Sectors and 18 NAICS 3-digit Manufacturing Industries at
http://www.bls.gov/mfp/mprtech.pdf. General information is available on the
BLS Multifactor Productivity website at http://www.bls.gov/mfp/mprover.htm.
Additional data not contained in the release can be obtained in print or at
http://www.bls.gov/mfp. A number of comprehensive tables set up as zip files
can be obtained at http://www.bls.gov/mfp/mprdload.htm. Included in the
additional data available in the home page is a zip file containing selected
multifactor productivity data that links 1948-87 SIC data to NAICS data from
1987 forward. This file includes data for the private business and private
nonfarm business sectors.

Footnotes, Tables 1-4
Source: BLS develops productivity measures using output data published by the
Bureau of Economic Analysis (BEA), compensation and hours data published by
other Bureau of Labor Statistics (BLS) programs, and capital data supplied
by BEA and U.S. Department of Agriculture. Also see Technical Notes in this
release.
(1) The private business sector includes all of gross domestic product except
the output of general government, government enterprises, non-profit
institutions, the rental value of owner-occupied real estate, and the
output of paid employees of private households. The private nonfarm
business sector also excludes farms but includes agricultural services.
(2) Output per unit of combined labor and capital services.
(3) Gross domestic product originating in the sector, chained superlative index.
(4) Index of hours at work of all persons including employees, proprietors,
and unpaid family workers, classified by age, education, and gender. This
chained superlative index is computed by combining changes in the hours of
each age, education, and gender group weighted by each groups share of
the total wage bill.
(5) A measure of the flow of capital services used in the sector. Capital
services measure the services derived from the stock of physical assets
and software. The assets included are fixed business equipment,
structures, inventories, and land.
(6) The growth rates of labor input and capital services are combined by
weighting with their respective shares of current dollar costs, and
aggregating into a chained superlative index.